India hikes interest rates by 25 basis points

Dr. Harsha Cabral PC

MUMBAI, June 16, 2011 (AFP) – India’s central bank on Thursday raised its key short-term interest rates by 25 basis points — its 10th hike in 16 months — in a bid to tame high inflation stuck at “uncomfortable levels.” The Reserve Bank of India raised its repo rate — at which it lends to commercial banks — to 7.50 percent and increased the reverse repo — the rate it pays to banks for deposits — to 6.50 percent.

The repo rate is now at its highest since November 2008.

“Inflation persists at uncomfortable levels and much above our comfort zone,” the RBI governor Duvvuri Subbarao said in a statement released after bank policymakers met in Mumbai.

The central bank decision came after data this week showed annual inflation accelerated to a higher-than-expected 9.06 percent in May, from 8.66 percent the previous month.

This is well above the RBI target of 5.0-6.0 percent.

Subbarao maintained a hawkish tone, saying a short-run slowdown in growth may be unavoidable as the bank maintains its “anti-inflationary” monetary policy stance.

Analysts had expected the increase and say further hikes are still likely in coming months.

India’s Sensex opened lower before the meeting, as